Federal Contractors Must Offer Paid Sick Leave to Their Employees

The White House also emphasized that many private-sector employers have already voluntarily changed their employment policies to provide paid sick leave (which goes above and beyond the unpaid, job-protected leave provided by the Family Medical Leave Act of 1993), including for employees of their contractors and vendors, and cited a survey of employers in Connecticut who reported zero to minimal effects of the benefit on their bottom lines. Id. Although the cost to federal contractors of implementing the Executive Order was not mentioned in the White House's announcement, administration officials stated to the press that the costs of compliance on contractors are expected to be offset by savings that will accrue from lower rates of worker attrition as well as increased worker productivity. See Cinquegrani, Gayle, Obama Order Will Give Federal Contractors Paid Sick Leave, Daily Labor Report (Bloomberg BNA), Sept. 7, 2015.

An analysis of the costs and benefits of the paid sick leave requirement, while absent from the Executive Order, related press release, and talking points, is expected to be presented in the Department of Labor's (DOL) final regulations implementing the Executive Order. Secretary of Labor Thomas Perez told reporters that the Executive Order is part of an effort “to ensure the federal government leads by example,” which the Executive Branch may do (without Congress's assent) by regulating the employment practices of the private business with whom the federal government contracts. Id. See also the Federal Property and Administrative Services Act of 1949, 40 U.S.C. ' 101 et seq.

The White House also used the announcement of the Executive Order to renew its call for Congress to pass the Healthy Families Act, which would require all businesses with 15 or more employees to offer up to seven paid sick days each year. Although the bill has been referred to the appropriate House of Representatives subcommittee for further proceedings, it is unlikely to pass in the 16 months remaining before the expiration of Barack Obama's presidential term. See U.S. Congress, Status of H.R. 932-Healthy Families Act, as of Sept. 16, 2015, http://tinyurl.com/qefj6g9.

This Executive Order is the latest installment in a series of orders in the waning days of the Obama Administration that have aimed to “lead by example” by requiring federal contractors to offer more generous wages, benefits, and working conditions, than those other private employers must offer. Only a few days after the President signed Executive Order 13706 requiring paid sick leave, the DOL published final regulations (implementing Executive Order 13665) protecting employees of contractors who openly discuss compensation information.

Requirements of the Executive Order

The Executive Order requires federal contractors, and all tiers of their subcontractors, to offer no less than 56 hours (the equivalent of seven days) of paid sick leave per year to their employees working full time on federal contracts. The new sick leave requirement will apply to new contracts and solicitations issued after Jan. 1, 2017, and will affect an estimated 300,000 workers. The paid sick leave required under the Executive Order is an accrued benefit ' covered employees will earn a minimum of one hour of paid sick leave for every 30 hours worked until up to 56 hours of leave is earned. However, nothing in the Executive Order prohibits contractors from offering more generous amounts of paid leave if they choose to do so. Paid sick leave will not only carry over from year to year, but also must be reinstated for an employee who is rehired by a contractor within 12 months of a job separation.

Who Must Comply?

On its face, the Order applies to contractors and all tiers of subcontractors. Prime contractors and subcontractors will be required to flow down the new sick leave requirement in all subcontracts, using anticipated contract clause language. Specifically, the Executive Order applies to all procurement contracts for services or construction, services contracts covered by the Service Contract Act, contracts for concessions, and contracts for the provision of services on federal property for federal employees and the general public. Of particular importance for contractors is that the new sick leave requirement is in addition to already existing prevailing wage and fringe benefits requirements under the Service Contract Act and the Davis Bacon Act, and any sick leave provided under the new Executive Order will not be credited toward complying with the prescribed health and welfare benefits required by those statutes.

What Types of Health-Related Events May the Leave Be Used For?

Paid sick leave may be used for a variety of health-related purposes. Employees may use the paid sick leave to seek treatment for their own or a family member's (such as a child, parent, spouse, domestic partner, or another loved one) physical or mental illness or injury, obtain a diagnosis or preventive care for themselves or a family member, or to cover their own absence resulting from domestic violence, sexual assault, or stalking.

Does the Contractor Have Any Freedom to Structure the Leave?

Contractors may have some flexibility in how they structure the leave offered to employees. For example, the Executive Order does not require payout at termination of accrued sick leave, but does not explicitly prohibit it either, so contractors have the flexibility to structure this benefit as they wish. Similarly, the Executive Order does not prohibit contractors from front-loading the leave rather than providing it on an accrued basis. An employee's use of paid sick leave cannot be contingent on the employee finding a replacement to cover his or her responsibilities at work, so contractors will be responsible for ensuring that their business needs are met when an employee elects to take paid sick leave. The final regulations issued by the DOL may provide further clarification on how contractors may structure the paid sick leave.

Does the Employee Have Obligations to the Contractor in Taking Paid Sick Leave?

The Executive Order requires an employee to make either an oral or written request to a contractor at least seven days in advance of the leave being taken (if the employee has advance knowledge) or as soon as practicable. The employee must indicate the expected duration of the leave in the request to the contractor, and a contractor may seek certification from a health care provider only for employee absences of three or more consecutive workdays.

Can an Employee Sue a Contractor for Violations?

While the Executive Order prohibits contractors from interfering with or in any way discriminating against employees for taking paid sick leave, it does not provide employees with a private right of action to sue the employer in court ' only the DOL has the legal authority to investigate potential violations and obtain compliance with the requirement.

How Does the Executive Order Affect a Contractor's Obligation Under State or Local Law?

This is a critically important feature of the paid sick leave legal landscape. The Executive Order does not displace more generous paid sick leave requirements imposed by state and local laws. Thus, independent of the Executive Order, the generally applicable state and local laws also may require contractors to provide paid sick leave. The Executive Order makes clear that contractors will be required to adhere to the more generous of the new federal or otherwise applicable state or local laws ' in other words, federal law is the floor, not the ceiling, of what contractors might be required to do.

Impact on the Private Sector

According to the Executive Order, the DOL will issue implementing regulations by Sept. 30, 2016, so that the regulations and Executive Order become fully effective and binding on contractors by Jan. 1, 2017. Final regulations will not become effective until the DOL provides a Notice of Proposed Rulemaking and a 60-day period for public comments, and the Department itself will have an opportunity to reply to the comments received from the public to the Notice of Proposed Rulemaking. It remains to be seen what exemptions, embellishments and nuances, if any, will be added to the sick leave requirements through the regulatory process. For example, while the Executive Order indicates that it applies only to employees who work “on” federal contracts, the regulations could interpret this language to include all employees of the contractor regardless of whether the work they perform relates to the contract. The implementation of the Executive Order will also be dependent on the Federal Acquisition Regulatory Council's promulgation of regulations and applicable contracting clauses.

Although the Executive Order will apply only to new contracts beginning in 2017, compliance with the Order will require more than just a “copy and paste” of the new requirement into employee handbooks and manuals. Employers that have contracts with the federal government, as well as those who have subcontracts with federal contractors, should review their sick leave policies now to determine whether they are in compliance with the impending requirement, and should carefully review the regulations once they are promulgated, so that any new or revised leave policy captures all of the nuances set forth in the DOL's interpretation of the Executive Order. Contractors and subcontractors should also start planning on how they will modify their pricing strategies for new federal contracts to recoup the anticipated costs of compliance with the new sick leave requirement.

Conclusion

This Executive Order is the most recent iteration of the Obama administration's strategy of persuading private-sector employers to offer more generous employee protections, and its implementation is scheduled to occur before the next president takes office on Jan. 20, 2017. Most likely, the paid leave requirement will survive in its current form regardless of which party wins the White House in November 2016, provided that new implementing regulations are finalized before then. While the DOL estimates the costs of implementation to be minimal, covered contractors should use this moment as an opportunity to revisit their sick leave policies to ensure that they are in compliance with all applicable state and local laws, and are making the most of their employee benefits program.

Michael J. Schrier is Special Counsel in the Washington, DC, office of Duane Morris LLP. Matthew J. Meltzer is an associate in the firm's Philadelphia office. They may be reached at [email protected] and [email protected], respectively.

On Sept. 7, 2015, President Barack Obama signed Executive Order No. 13706, which requires federal contractors to offer their employees working on federal contracts up to seven days of paid sick leave per year. The Executive Order will impact contracts entered into on or after Jan. 1, 2017.

Background

Explaining its reasons for issuing the Executive Order, the White House referred to research showing that paid sick leave provides a substantial benefit to employers by reducing turnover and increasing worker productivity through a reduction in the spread of illness in the workplace. See Press Release, Fact Sheet: Helping Middle-Class Families Get Ahead by Expanding Paid Sick Leave, The White House Office of the Press Secretary, Sept. 7, 2015, http://tinyurl.com/o7wjbtn.

The White House also emphasized that many private-sector employers have already voluntarily changed their employment policies to provide paid sick leave (which goes above and beyond the unpaid, job-protected leave provided by the Family Medical Leave Act of 1993), including for employees of their contractors and vendors, and cited a survey of employers in Connecticut who reported zero to minimal effects of the benefit on their bottom lines. Id. Although the cost to federal contractors of implementing the Executive Order was not mentioned in the White House's announcement, administration officials stated to the press that the costs of compliance on contractors are expected to be offset by savings that will accrue from lower rates of worker attrition as well as increased worker productivity. See Cinquegrani, Gayle, Obama Order Will Give Federal Contractors Paid Sick Leave, Daily Labor Report (Bloomberg BNA), Sept. 7, 2015.

An analysis of the costs and benefits of the paid sick leave requirement, while absent from the Executive Order, related press release, and talking points, is expected to be presented in the Department of Labor's (DOL) final regulations implementing the Executive Order. Secretary of Labor Thomas Perez told reporters that the Executive Order is part of an effort “to ensure the federal government leads by example,” which the Executive Branch may do (without Congress's assent) by regulating the employment practices of the private business with whom the federal government contracts. Id. See also the Federal Property and Administrative Services Act of 1949, 40 U.S.C. ' 101 et seq.

The White House also used the announcement of the Executive Order to renew its call for Congress to pass the Healthy Families Act, which would require all businesses with 15 or more employees to offer up to seven paid sick days each year. Although the bill has been referred to the appropriate House of Representatives subcommittee for further proceedings, it is unlikely to pass in the 16 months remaining before the expiration of Barack Obama's presidential term. See U.S. Congress, Status of H.R. 932-Healthy Families Act, as of Sept. 16, 2015, http://tinyurl.com/qefj6g9.

This Executive Order is the latest installment in a series of orders in the waning days of the Obama Administration that have aimed to “lead by example” by requiring federal contractors to offer more generous wages, benefits, and working conditions, than those other private employers must offer. Only a few days after the President signed Executive Order 13706 requiring paid sick leave, the DOL published final regulations (implementing Executive Order 13665) protecting employees of contractors who openly discuss compensation information.

Requirements of the Executive Order

The Executive Order requires federal contractors, and all tiers of their subcontractors, to offer no less than 56 hours (the equivalent of seven days) of paid sick leave per year to their employees working full time on federal contracts. The new sick leave requirement will apply to new contracts and solicitations issued after Jan. 1, 2017, and will affect an estimated 300,000 workers. The paid sick leave required under the Executive Order is an accrued benefit ' covered employees will earn a minimum of one hour of paid sick leave for every 30 hours worked until up to 56 hours of leave is earned. However, nothing in the Executive Order prohibits contractors from offering more generous amounts of paid leave if they choose to do so. Paid sick leave will not only carry over from year to year, but also must be reinstated for an employee who is rehired by a contractor within 12 months of a job separation.

Who Must Comply?

On its face, the Order applies to contractors and all tiers of subcontractors. Prime contractors and subcontractors will be required to flow down the new sick leave requirement in all subcontracts, using anticipated contract clause language. Specifically, the Executive Order applies to all procurement contracts for services or construction, services contracts covered by the Service Contract Act, contracts for concessions, and contracts for the provision of services on federal property for federal employees and the general public. Of particular importance for contractors is that the new sick leave requirement is in addition to already existing prevailing wage and fringe benefits requirements under the Service Contract Act and the Davis Bacon Act, and any sick leave provided under the new Executive Order will not be credited toward complying with the prescribed health and welfare benefits required by those statutes.

What Types of Health-Related Events May the Leave Be Used For?

Paid sick leave may be used for a variety of health-related purposes. Employees may use the paid sick leave to seek treatment for their own or a family member's (such as a child, parent, spouse, domestic partner, or another loved one) physical or mental illness or injury, obtain a diagnosis or preventive care for themselves or a family member, or to cover their own absence resulting from domestic violence, sexual assault, or stalking.

Does the Contractor Have Any Freedom to Structure the Leave?

Contractors may have some flexibility in how they structure the leave offered to employees. For example, the Executive Order does not require payout at termination of accrued sick leave, but does not explicitly prohibit it either, so contractors have the flexibility to structure this benefit as they wish. Similarly, the Executive Order does not prohibit contractors from front-loading the leave rather than providing it on an accrued basis. An employee's use of paid sick leave cannot be contingent on the employee finding a replacement to cover his or her responsibilities at work, so contractors will be responsible for ensuring that their business needs are met when an employee elects to take paid sick leave. The final regulations issued by the DOL may provide further clarification on how contractors may structure the paid sick leave.

Does the Employee Have Obligations to the Contractor in Taking Paid Sick Leave?

The Executive Order requires an employee to make either an oral or written request to a contractor at least seven days in advance of the leave being taken (if the employee has advance knowledge) or as soon as practicable. The employee must indicate the expected duration of the leave in the request to the contractor, and a contractor may seek certification from a health care provider only for employee absences of three or more consecutive workdays.

Can an Employee Sue a Contractor for Violations?

While the Executive Order prohibits contractors from interfering with or in any way discriminating against employees for taking paid sick leave, it does not provide employees with a private right of action to sue the employer in court ' only the DOL has the legal authority to investigate potential violations and obtain compliance with the requirement.

How Does the Executive Order Affect a Contractor's Obligation Under State or Local Law?

This is a critically important feature of the paid sick leave legal landscape. The Executive Order does not displace more generous paid sick leave requirements imposed by state and local laws. Thus, independent of the Executive Order, the generally applicable state and local laws also may require contractors to provide paid sick leave. The Executive Order makes clear that contractors will be required to adhere to the more generous of the new federal or otherwise applicable state or local laws ' in other words, federal law is the floor, not the ceiling, of what contractors might be required to do.

Impact on the Private Sector

According to the Executive Order, the DOL will issue implementing regulations by Sept. 30, 2016, so that the regulations and Executive Order become fully effective and binding on contractors by Jan. 1, 2017. Final regulations will not become effective until the DOL provides a Notice of Proposed Rulemaking and a 60-day period for public comments, and the Department itself will have an opportunity to reply to the comments received from the public to the Notice of Proposed Rulemaking. It remains to be seen what exemptions, embellishments and nuances, if any, will be added to the sick leave requirements through the regulatory process. For example, while the Executive Order indicates that it applies only to employees who work “on” federal contracts, the regulations could interpret this language to include all employees of the contractor regardless of whether the work they perform relates to the contract. The implementation of the Executive Order will also be dependent on the Federal Acquisition Regulatory Council's promulgation of regulations and applicable contracting clauses.

Although the Executive Order will apply only to new contracts beginning in 2017, compliance with the Order will require more than just a “copy and paste” of the new requirement into employee handbooks and manuals. Employers that have contracts with the federal government, as well as those who have subcontracts with federal contractors, should review their sick leave policies now to determine whether they are in compliance with the impending requirement, and should carefully review the regulations once they are promulgated, so that any new or revised leave policy captures all of the nuances set forth in the DOL's interpretation of the Executive Order. Contractors and subcontractors should also start planning on how they will modify their pricing strategies for new federal contracts to recoup the anticipated costs of compliance with the new sick leave requirement.

Conclusion

This Executive Order is the most recent iteration of the Obama administration's strategy of persuading private-sector employers to offer more generous employee protections, and its implementation is scheduled to occur before the next president takes office on Jan. 20, 2017. Most likely, the paid leave requirement will survive in its current form regardless of which party wins the White House in November 2016, provided that new implementing regulations are finalized before then. While the DOL estimates the costs of implementation to be minimal, covered contractors should use this moment as an opportunity to revisit their sick leave policies to ensure that they are in compliance with all applicable state and local laws, and are making the most of their employee benefits program.

Michael J. Schrier is Special Counsel in the Washington, DC, office of Duane Morris LLP. Matthew J. Meltzer is an associate in the firm's Philadelphia office. They may be reached at [email protected] and [email protected], respectively.